Ralph Martire is My Hero--Illinois Fiscal Policy Wonk.

Ralph Martire is the executive director of the Center for Tax and Budget Accountablility which is a bipartisan nonprofit research group that studies budget and fiscal matters. Mr. Martire also writes a monthly column for the Springfield Journal Register.

This month's column dealt with how government spends money. There are 2 ways, first directly on services(roads, education, medical, prisons, human services, etc.) but the other way is indirectly by enacting tax breaks/cuts.

I think all of us understand the first category at least a bit, although some skew it to just spending on poor lazy people who just won't get a job(of course they are the only ones that use the roads, education, medical, IEMA, Commerce Agency....yes, I'm being snarky). But the second category is a bit wonkier....now, we, as normal people, do receives some tax cuts, dependent and property tax "cuts" could be considered "tax expenditures", but this category are giving to businesses to allegedly "help fund a public good", you know-economic development. Such as jobs.

OK, the first category, direct expenditures, are given direct funds from the budget...hence the term, "direct expenditures"(OK, duh), but indirect or tax expenditures, Illinois doesn't collect anything, they allow businesses to keep the profits they would pay in taxes(or a percentage) and expect the business to provide a public good...you know, jobs and such. Now, don't get me wrong, this is a very "noble" aspect and a good partnership, if neither partner tries to screw the other...HELLO Google, Sears, CME! I'm talking about you!

Once corporate tax cuts(rarely are these given to the mom and pop small business groups--cities and counties can give local tax cuts) are made law...the cuts are not inspected to see if they are being used as intended...you know, more jobs rather than...oh...junkets to Costa Rica.  Corporations don't have to come back on a yearly basis, begging for their tax cut, unlike schools, social service agencies--they must make their argument annually for their share of the budget...and these same services also compete with each other for what's in the pot...sort of like the reality shows like Survivor or Fear Factor(among others), each agency has to prove their more worthy than the next for a budget that keeps shrinking...strongest man left standing. 

Now, its understandable that during times of sluggish economy, services might have to fight to be King of the Hill, but why only those? Why not corporate tax cuts? As I noted, both Google and Sears are still receiving the tax cuts even tho they lied about how they were going to help Illinois! Everyone needs to pay their fair share.

SB1159/HB390, the Close Corporate Tax Loopholes bills were written during this session to close/investigate changes within a couple of our worst loopholes in Illinois. Forcing service providers to slug it out for funding during difficult fiscal times may be unavoidable, but why only direct expenditures? Why not big corporations having to also be scrutinized? Tax expenditures should also be scrutinized. Even Gov. Quinn endorses it as well as having bi-partisan supporters.

The first loophole that was identified in this bill is the Foreign Dividend Exemption. Corporations in Illinois don't have to pay any taxes on dividends made in foreign lands, only on profits in the United States...could we make it any easier for companies to move much of their profits into dummy corporations in, oh, I don't know, Viet Nam????? How about the job outsourcing? No taxes paid for that call center in India? Cool, lets screw the Illinois citizens. This is an annual loss of $300 million.

The second loophole is almost as bad as the first. The Domestic Activities Production Deduction which is guided by federal law that states that businesses may deduct 9% of their income if they are producing anywhere in the United States. So, what does Illinois do? We have the same freakin' wording, so that if an Illinois company moves its business to say, Alabama, it get to keep the deduction from the Illinois business instead of only making it about Illinois. Yes, this does encourage businesses within the US, but why not just make it for Illinois? Instead of encouraging businesses to grow in other states?  The cost of this idiotic law? $100 million annually.

And last, the non combination rule. This rule exempts all financial, insurance and transportation businesses from reporting all profits. So, if I'm in charge of a big corporation that has a transportation subsidiary...how long do you think it'd take me to figure out, move most, if not all, of my profits to that business and not pay taxes? Maybe an hour if I'm a bit dull, I'd say. This costs us about $25 million--not as large as the other 2, but I'd pick it up in a flash, wouldn't you?

And as we know in these times of corporate greed and lobbyists, this bill wasn't even called for a vote.

But there a couple  more that I'd like to see changed and I've complained about them in the past:

The Retailer's Discount on Sales Taxes and Accelerated Depreciation.

Accelerated depreciation is very easy to understand. Some businesses get to depreciate equipment (computers, cars, JETS) at a faster rate than other businesses--doesn't sound very fair to me.

The Retailers Discount goes sorta like this---I go to a store, buy $100 worth of clothing and pay the 6.25% state sales tax. The retailer then sends the $6.25 to the state at the end of the quarter/year, right? Nope. This  tax cut allows the retailer to keep some of the sales tax. It was established years ago when it was more difficult to figure out the taxes in a small window of time. My idea? To the State legislature...ummm, we have computers now, this problem is alleviated! Get rid of this giveaway NOW!  This costs the state between $4-5 Billion annually! We wouldn't have a so-called pension problem if we changed this law to only include small local businesses. Walmart walks out with an extra $9 million a year---you mean to tell me you think Walmart, the one that pays its employees so little that over 80% receive medicaid and food stamps...and we give them another $9 Million of our tax money?????
Yes, its time for some changes in Illinois, but that means everyone should pay their fair share, not just Mr. and Ms. John Q Public...Caterpillar its time to get your lazy ass off of corporate welfare and get to work!

Illinois is NOT broke, but our Tax System is!

HUH??? But all the media says Illinois is one of the worst business states in the universe!!!! If ET had landed in Illinois, he'd still be stuck! Sure...don't ya just love the crap the right/rich/corporate/take you pick like to try to shove down our throats? Too often it works because sound bytes and snappy little phrases work much better for people who don't feel like they have the time or the knowledge to understand these things. Oh, and you know its MY fault Illinois isn't paying its bills...so, what are some facts? 

First: Illinois has the least amount of state employees per capita than any other state, yes, that means that even Mississippi cares more for their residents than we can. You can't lay off more employees, because many places are down to bare bones minimum to begin with. 

Second: Why make cuts???? Our tax system is antiquated and needs to be updated. We also need to get rid of a couple tax laws that either aren't needed any longer or are not needed in a time when we, the middle class, state employees and/or retirees, are expected to pay more while the corporations are paying less.

So, some facts about the tax system. In my last post, I spoke about the difference between our flat tax and a graduated income tax, like all of our neighbors have('cept Indiana):

• Iowa: 9 rates that start at 0.36% to 9% (rate is higher than Illinois at $12K-6.12%)
• Kentucky: 6 rates that range from 2.0% to 6% (rate higher than Illinois at $5000)
• Missouri: 10 rates from 1.5% to 6% ( rate is higher than Illinois at $9,000)
• Wisconsin: 5 rates starting at 4.6% to 7.75% (rate is higher than Illinois at $13,580 - 6.15%)
• Indiana: 3.4%--ok, they're lower, but...its Indiana(spoken like a true FIB).

OMG!!! LOOK--all of the states have rates that actually are higher than ours at the top end! How could that be??? You mean all those fine business/media types have been lying to us?!?!?!?? Sure seems that way.

Not only that, but all, including Indiana tax services as well as goods. In other words, they have broadened the sales tax base.  So, what services? Dining, marina fees, landscaping, dry cleaning are some that were in a bill a couple of years ago(that also included seniors being able to get a property tax rebate on income taxes-now its just a credit). And how do those state sales tax rates compare?

• Illinois:       6.25%          Indiana:   7%
• Kentucky: 6%                Michigan: 6% 
• Iowa:        6%                 Missouri:  4%

Illinois is not out of bounds on sales tax, in fact it looks like we're about the same place as everyone else. 

Another area that we could set up a tax is on financial transactions--sales of stocks, etc., not withdrawing $100 from your savings. Again, this is something that would be small, but effective in 2 ways: first, more revenue, second-more stability in the market and less fluctuation--think gas prices and how they've been manipulated in the last couple of months by speculators...same thing can happen statewide vs. nationwide.

So, now that I've begun to get Illinois out of the trash bin that others have built for her, I've got a couple more ideas...

Large businesses in my state get a much larger piece of the tax cut pie than small and medium sized businesses, specially in the area of the "Single Sales Factor"(I will try to explain this later in another post because its very, very, wonky), suffice to say that this bomb allowed Caterpillar to pay NO sales tax in Illinois, this costs us about $600 million annually! But there are 2 other cuts/credits that businesses receive that just don't seem very fair:  the Retailer's Discount on Sales Taxes and Accelerated Depreciation.

Accelerated depreciation is very easy to understand. Some businesses get to depreciate equipment (computers, cars, JETS) at a faster rate than other businesses--doesn't sound very fair to me.

The Retailers Discount goes sorta like this---I go to a store, buy $100 worth of clothing and pay the 6.25% state sales tax. The retailer then sends the $6.25 to the state at the end of the quarter/year, right? Nope. This  tax cut allows the retailer to keep some of the sales tax. It was established years ago when it was more difficult to figure out the taxes in a small window of time. My idea? To the State legislature...ummm, we have computers now, this problem is alleviated! Get rid of this giveaway NOW! 

Yes, Illinois needs to budget the balance, but there are many ways to balance that would be fair to the state employees, the retirees and to all of the people in Illinois, not just kow-towing to the Chamber of Commerce and the Chicago Civic Federation.

The state of the State of Illinois-it ain't broken

The Chamber of Commerce and the Chicago Civic Federation have been jumping up and down about how Illinois is broke and its all "my" fault, being a retired state employee who receives a pension that I put up to 9% of my salary into....naw, I don't have an issue with their lies....but anyways.....
First, nothing to do with finances directly, but Illinois received a "C" in public integrity, placing 10th in the nation...yep, there are 40 states that are worse than Illinois and that includes all the ones that surround us, imagine that. Yes, we've had our share of corrupt politicians, but ours actually end up in prison or at least indicted and out of public office.
So, back to the financial state of Illinois. I do agree that our tax system is broken, but not because its too much...its broken because its a "flat tax"--everyone alleges to be taxed at the same rate...not really. We have an antiquated tax system--flat tax, no taxes on service(unlike the surrounding states). We have not actually changed the tax structure since the 70's, partially because to change the flat tax, we need an amendment to our constitution, but we do need to do something.
So, how broke is Illinois? Not very. Illinois has the 5th largest economy in the United States...and has been for over a decade! Obviously, some people are doing all right in the Land of Lincoln. Much of this is in northern Illinois--Cook, Will and DuPage counties. So why do we have such a problem with paying our bills? Greed?
I do believe that part of the problem is greed, considering the disproportionate income/wealth inequality that has developed in this country in general, but in Illinois we also have a very unfair tax system, the one that so many right wing folks dream of--the flat tax. The idea is that everybody pays the same, and that's more fair than a progressive income tax.
So, why is a flat tax unfair? It seems to be fair, a guy making $10K pays the same as a guy making $10M, right? Wrong...
The less income you have, the more you pay in taxes, when all taxes are considered. The Center for Tax and Budget Accountability is a bi-partisan non-profit think tank that promotes fair, efficient and progressive tax, spending and economic policies--the definition on their website. This group has been instrumental in research on different ways to end the funding problems in Illinois and make it a better system for all Illinoisans, not just the top percentage.
In February of this year, the CBTA issued a report on why Illinois needs an overhaul of the tax system and why the flat tax is one of the most recessive ways of taxing. The first graph in this report shows the different taxes we all pay, Sales/excise, property and income. People making $18K or under spend 13.7% of their income on taxes...people making $500K and over? Only 5.3%! Now, if you're sitting there with the idea that, "well those poor folks should try harder...they're the burden"...if you make under $50K, you're still paying about 12% of your income on taxes. So how fair is it that we (middle class) should pay more than the wealthiest? I'm not talking about a percentage point or so, its almost 7% difference! This report also points out that the bottom 60%(making up to $58K annually) of working people in Illinois bring home less than they did in 1979! And our taxes really haven't changed much since the 70's.
Part of the reason that Income tax is such a big issue is that its the only one that can be controlled by our present situation. For example, I'm very lucky and I'm making $100K...all of a sudden, the company I'm working for closes up and all I can find is a job as a barista making $20K...with a progressive income tax(and to a point, the regressive income tax), the tax automatically adjusts. That doesn't happen with other types of taxes...I can't go to the gas station and tell them, "I can't pay that much right now cuz I lost my job"...best they may do is say, "Fill out an application, we're hiring", that is if they don't laugh me out of the door....
So, you're still cynical...."What about cutting spending? We all know that the government spends too much!" that might work somewhere else, but Illinois is 47th in the country when it comes to spending and we are 50th when it comes to state employment rolls(not the lowest in number, but as a ratio of state employees per capita). If we go along with some of the budget cuts that are running around, we are not only putting more people on unemployment, we are putting the clients in danger. Illinois does not act like a drunken sailor on Friday night, more like a spinster librarian on Sunday morning!
"What about all of those businesses that would move?" Hasn't happened yet. Remember when WI and IN scab governors put out ads and billboards about the great business climate in their states? In the last year, Illinois has gained 30K jobs, while both IN and WI have lost thousands of jobs....hmmm....but, then again, our tax structure does some other interesting perks than others for business, such as a retailers discount on sales taxes. Huh? This began years ago when it was difficult for retailers to figure out the exact amount to send to the state...we have computers now...I think we can stop this practice. I'll have more tomorrow-this has gotten reallllll long and I'm hoping you haven't fallen asleep.